Finance
In South Dakota, 'hypothecation' in mortgage lending means:
AThe lender hypothesizes about future property values
BThe borrower pledges property as security for a debt without giving up possession✓ Correct
CThe buyer takes over the seller's existing mortgage
DThe lender transfers the mortgage to a new servicer
Explanation
Hypothecation is the pledging of property as collateral for a debt while retaining possession and use of the property. The borrower continues to live in and use the mortgaged property.
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Key Terms to Know
Deed of Trust
A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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